Reverse Knowledge Transfer in Indian MNEs

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Reverse Knowledge Transfer in

Indian MNEs

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Smitha Ravindranathan Nair

Thesis submitted to The University of Sheffield in partial fulfilment of the requirement of the degree of Doctor of Philosophy

Management School The University of Sheffield

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ACKNOWLEDGMENTS

I would like to thank my supervisors, Professor Mehmet Demirbag and Professor

Kamel Mellahi for their support and guidance during my doctoral research. I am

grateful for the time and effort they spent towards my research and for my publications.

It would have been almost impossible for me to complete this journey without their

continuous support and encouragement.

I would also like to thank my family; my husband, parents and brother who have always

been there for me when I needed them. Their belief in me was a constant source of

inspiration that kept me going on this journey.

I am also thankful to all the managers who spent their valuable time to respond to my

questionnaire. I really appreciate their thoughtfulness and the consideration they have

shown towards my research.

Last but not the least; I am thankful to God Almighty who gave me the required

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ABSTRACT

Emerging Market Multinational Enterprises (EM MNEs) and their growing importance in the current global economic and business scenario has attracted much scholarly attention. An important aspect in the growth of these EM MNEs is their rapid catching up strategies which has been discussed extensively in the international business (IB), management and strategy literature. Indian MNEs, one of the prominent amongst EM MNEs, have had their share of overseas acquisitions, more so in the last decade.Their international expansions along with the subsequent knowledge transactions and associated learning have played a vital role when it comes to their catching up strategies as latecomers in the international scene. These strategies were attempts to overcome their limitations and weakness pertaining to organisational competencies, home country conditions and availability of resources. Hence to be globally competitive, it has become imperative for these MNEs to learn from their overseas counterparts, be it alliance or joint venture partners or acquired subsidiaries.

This thesis attempts to extend the current understanding of knowledge transfers in MNEs with specific focus on MNEs from emerging markets and how they learn from their advanced overseas units. Going by the conventional approach where the subsidiaries learn from their parents, the knowledge transfer literature has also largely dealt with this form of primary knowledge transfer. But one needs to consider the fact that in the current global scene, subsidiaries are also sufficiently capable and some even function as centres of excellence and support other units within the network. In this context, reverse knowledge transfers seek more attention and more so in the case of MNEs from emerging markets like India. Towards achieving this, we draw our observations from a cross sectional survey of a sample of Indian MNEs, who have overseas subsidiaries, to explore the effects of some of the main determinants of such cross border reverse knowledge transfers.

The literature dealing with the antecedents of knowledge transfer is largely fragmented and hence this thesis is an attempt to integrate the different prevailing perspectives. This

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study looks at the determinants of reverse knowledge transfer in Indian MNEs in terms of the characteristics of both the Indian parent and the associated overseas subsidiary unit. Further, it also looks at the role of the characteristics of the knowledge involved in the transfer and other dyadic aspects of the relationship between the subsidiary and the parent and also between the host and home countries. The analysis indicates that knowledge attributes are the most influential determinants when it comes to reverse knowledge transfer in Indian MNEs. This is followed by parent characteristics and then subsidiary characteristics while dyadic aspects have the least influence on reverse knowledge transfer in Indian MNEs. In addition to knowledge tacitness, complexity and relevance, it could be seen that subsidiary mandate and relative competitive positioning also positively influence reverse knowledge transfer in Indian MNEs. Partial support was found for the positive effects of the other determinants like organisational learning capability, perceived subsidiary capability, organisational collaboration and technical knowledge infrastructure on reverse knowledge transfer.

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DISSEMINATION FROM THIS THESIS

Conference Papers

• “Knowledge Acquisitions by Indian Multinationals”, AIB UK Chapter, March 2013 (Presented at Aston Business School)

• “Reverse Knowledge Transfer: A Survey of Acquisitions by Indian MNEs” – Paper accepted for the AIB 2013 Conference at Istanbul, Turkey (To be presented in July 2013)

• “Reverse Knowledge Transfer in Indian Multinationals” – Paper accepted for workshop on the Impact of Emerging Multinationals on Global Development, European Cooperation in Science and Technology, Milan, May 2013

• “Reverse Knowledge Transfer from Overseas Acquisitions” – Paper accepted at the Annual SMS Conference in Atlanta, September 2013

Papers Submitted (under Revision)

• “Reverse Knowledge Transfer from Overseas Acquisitions: A Survey of Indian MNEs” – Management International Review, Special Issue on Emerging Market Multinationals

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List of Figures

Figure 1: Outline of the Thesis ... 22

Figure 2: Internationalisation of EM MNEs - Literature by themes ... 38

Figure 3: OFDI Trends (Source: UNCTAD FDI Database) ... 41

Figure 4: OFDI Trend from BRICS countries (Source: UNCTAD FDI Database) ... 42

Figure 5: Geographical Dispersion of M&A by BRIC countries (2000-2007) ... 43

Figure 6: Outward Investments by Countries in terms of Industries (Source - Gammeltoft, 2008) ... 46

Figure 7: Motivations for Indian overseas acquisitions (Source: Ray and Gubbi, 2009)... 60

Figure 8: Knowledge Management – Different Aspects ... 69

Figure 9: Knowledge Transfer in MNEs - A comprehensive view ... 80

Figure 10: Conceptual Model 1 ... 102

Figure 14: Data Collection Sequence ... 122

Figure 19: Full Model ... 177

Figure 20: Normal Q-Q Plots ... 246

Figure 21: Normal P-P Plots ... 246

Figure 22: Scatter Plots (DV Vs IV) ... 248

Figure 23: Residual Plots for Model 1C ... 248

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Figure 25: Residual Plots for Model 3C ... 250 Figure 26: Residual Plots for Model 4C ... 251 Figure 27: Residual Plots for Model 5F ... 252

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List of Tables

Table 1: Overseas Deals by BRIC countries (2000-2009) ... 42

Table 2: M&A’s by BRIC economies ... 44

Table 3: Senior Management views on Indian overseas acquisitions ... 60

Table 4: Knowledge Flow and MNEs - Literature ... 92

Table 5: Dimensions of Knowledge Transfer analysed in literature ... 98

Table 6: Knowledge Types analysed in literature ... 99

Table 7: Assumptions of the two main paradigms ... 117

Table 8: Characteristics of respondent MNEs and respondents ... 126

Table 9: Descriptive Statistics ... 128

Table 10: Means for different types of reverse knowledge flows ... 129

Table 11: Correlation Table ... 130

Table 12: Reliability Test – Cronbach’s alpha (SPSS) ... 131

Table 13: Rotated Component Matrix - EFA ... 133

Table 14: PLS output - Reliability and Convergent Validity ... 136

Table 15: Discriminant Validity ... 139

Table 16: OLS Regression results for model 1 ... 143

Table 17: OLS Regression results for model 1D (after dropping items TechInfra3 and AbsCap1) ... 144

Table 18: PLS Measurement Model results – model 1 ... 150

Table 19: PLS modelling with Reverse Knowledge Flow as the Endogenous variable – Model 1 ... 151

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Table 32: Summary of the analysis of hypotheses testing ... 185

Table 33: Summary of the models analysed... 185

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GLOSSARY OF TERMS & ABBREVATIONS

AVE Average Variance Extracted BCG Boston Consulting Group BEM Big Emerging Market BRIC Brazil, Russia, India, China

BRICS Brazil, Russia, India, China, South Africa

CB-SEM Covariance Based - Structural Equation Modelling CEE Central and Eastern Europe

CFA Confirmatory Factor Analysis CIS Commonwealth of Independent States CR Composite Reliability

CSA Country Specific Advantages EFA Exploratory Factor Analysis EM Emerging Market

FDA Federal Drugs Authority FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act

FICCI Federation of Indian Chambers of Commerce and Industry FSA Firm Specific Advantage

FTSE Financial Times Stock Exchange GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product

GI Global Innovator GNI Gross National Income GoF Goodness of Fit

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IB International Business IDP Investment Development Path IFC International Finance Corporation IJV International Joint Venture IM Implementers

IMF International Monetary Fund IP Internationalisation Process IPLC International Product Life Cycle IPR Intellectual Property Rights IT Information Technology

ITeS Information Technology enabled Services KBV Knowledge Based View

KM Knowledge Management KT Knowledge Transfer LI Local Innovators

LLL Linkage-Leverage-Learning M&A Merger & Acquisition MNE Multinational Enterprise

MSCI Morgan Stanley Capital International MV Manifest Variable

OEM Original Equipment Manufacturer OFDI Outward Foreign Direct Investment OL Organisational Learning

OLI Ownership-Location-Internalisation OLS Ordinary Least Square

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PLS-SEM Partial Least Square - Structural Equation Modelling R&D Research & Development

RBI Reserve Bank of India RBV Resource Based View RKT Reverse Knowledge Transfer SEBI Securities Exchange Board of India

SECI Socialisation-Externalisation-Combination-Internalisation SEI-CMM Software Engineering Institute-Capability Maturity Model SEM Structural Equation Modelling

STPI Software Technology Parks of India TC Transaction Cost

TCM Technology based Coordination Mechanisms TW MNEs Third World MNEs

UAE United Arab Emirates UK United Kingdom

UNCTAD United Nations Conference on Trade and Development US United States

VIF Variance Inflation Factor WEF World Economic Forum

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1. INTRODUCTION

Here an introduction to the thesis has been provided covering some of the key aspects pertaining to the background of research and the research objectives rising from the same. This chapter also throws light on the contributions made by this study and further outlines the structure of this thesis.

1.1 Research Background

Knowledge and its strategic relevance for a firm as a source of competitive advantage has been advocated extensively by the knowledge based view of the firm (Grant, 1996a). Further, the resource based view of the firm (Barney, 1991; Wernerfelt, 1984) and the dynamic capabilities framework (Teece and Pisano, 1994) stresses on the firm’s ability to manage its resources and capabilities effectively. With the global business scene shifting more towards knowledge based economy, and MNEs having geographically scattered units, one of the main challenges faced is with regards to effectively managing the globally dispersed knowledge. In this scenario, MNEs could be conceptualised as “international networks that creates, accesses and applies knowledge from multiple locations” (Almeida et al., 2002, p. 148). This conceptualisation follows from the treatment of MNEs as ‘transnational organisations’ (Bartlett and Ghoshal, 1989) where the different units perform their designated roles within the network to deal with their inherent complexities and heterogeneity. In this context, knowledge transfers and the associated learning are vital to MNEs as it helps them to tap into the resources and capabilities within these international networks.

The global economic and financial environment has witnessed drastic changes in the last two to three decades. The 1980s saw a financial scene largely dominated by liberal regulatory regime and privatisation with countries like India opening up their markets and encouraging competition. One of the main aspects that have contributed to the emergence of emerging markets like India is the surge in trade and disposable income, which followed the economic liberalisation. The relatively lower cost of operations and availability of skilled manpower in India made it an attractive

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destination for several MNEs to set up their operations. Backed by their large market potential and increasing growth rate, several of these emerging market (EM) MNEs like India started developing global aspirations which were fuelled by the visionary leadership of their entrepreneurial owners (Ramamurti, 2009) and the growing competition in domestic and international markets. The growing importance of these EM MNEs has made its mark in the IB and management literature as well (Jormanainen and Koveshnikov, 2012). One of the main focus has been on their internationalisation patterns; in terms of motives (Lou and Tung, 2007; Buckley et al., 2007; Liu et al., 2005; Li, 2007), location choices (Buckley et al., 2009b; Cuervo-Cazzuro and Genc, 2008) and entry strategies (Demirbag and Glaister, 2010; Bonaglia et al, 2007; Chittoor and Ray, 2007). These EM MNEs have indulged in overseas ventures and adapted themselves to the changing scenarios at a tremendous pace to satisfy their global ambitions (Lou and Tung, 2007). Building brands and gaining legitimacy and global recognition has been one of the main aspirations of these MNEs, which they attempt to achieve in short time span by way of mergers and acquisitions (M&As). The surge in outward Foreign Direct Investment (FDI) flows from developing and transition economies is an evidence of such global aspirations, with the outward FDI crossing $380 billion in 2008 to $450 billion in 2011 (1UNCTAD, 2012). These figures also indicate their share in the world OFDI flows is on the rise from 19% in 2008 to 27% in 2011. In general, EM MNEs are seen to have more risk tolerant, aggressive, rapid and dynamic approach towards internationalisation; targeting both developed and developing nations displaying both asset exploiting and exploration motives (Jormanainen and Koveshnikov, 2012). Much has been discussed about the advantages and disadvantages the EM MNEs have, which are considerably different from that possessed by the conventional MNEs from the West (Mathews, 2006; Lou and Tung, 2007) which in turn could be attributed to their unique internationalisation patterns.

All of the above discussed developments with respect to the internationalisation of EM MNEs also brought in an infusion of knowledge pertaining to newer technology & innovations, processes and management systems (Mathews, 2006). This clubbed with other local factors have prompted many of these EM MNEs to evolve into more

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efficient and innovative firms with capabilities and products that are truly global (Chittoor and Ray, 2007). Various frameworks like LLL framework (Mathews, 2006), springboard perspective (Lou and Tung, 2007), spiral co-evolutionary model (Li, 1998 and 2003), bundling model (Hennart, 2012) and other theoretical extensions (Cuervo-Cazurra, 2012) have attempted to explain the rapid internationalisation of EM MNEs and the associated learning. The fact that some of these MNEs now have successful global operations (viz. Lenovo, Suzlon and Huawei) even in developed countries shows that the knowledge acquired by way of this internationalisation has indeed helped them immensely with their catching up strategies. These internationalisation patterns are also very evident when it comes to Indian MNEs (viz. Tata Group, Ranbaxy, Hindalco, Infosys). As latecomers in the international business scene and lacking the superior capabilities and skills of their competitors from developed countries, Indian MNEs were also quick to recognise knowledge as an important strategic resource that could help them overcome the disadvantages they had and gain the competitive advantage to tackle global competition. A survey of Indian firms with overseas acquisitions (during 2003-2007) revealed that 78% of the respondents chose “learning new or advanced technology from the acquired company” as the top three reasons for the overseas acquisition (Kale, 2009). Another important factor is that they did not have the time or the resources (Elango and Patnaik, 2011) to develop these capabilities on their own because of the dynamic and competitive nature of international markets. Hence they resorted to international expansions and acquisitions that would set them quickly on their path to satisfying their global aspirations. Their focus on knowledge acquisitions to build on the FSA (firm specific advantage) is in alignment with RBV (resource based view) and knowledge based theory of the firm.

1.2 Research Aim and Objectives

In this context, the knowledge exchanges that materialise in EM MNEs following these international expansions are definitely a phenomenon of interest. This is because unlike the conventional MNEs who are mostly engaged in ‘forward diffusion’ (Thite et al., 2012) of superior home based capabilities to developing country subsidiaries, EM MNEs utilise the superior capabilities of their advanced subsidiaries. This brings us to the research aim which is to examine the process of

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reverse knowledge transfer (RKT) in the context of the emerging market MNEs in India. Now the question is twofold here; why RKT and why in the context of EM.

Literature on KT has mostly focussed on the conventional flow from parent to subsidiary units in the context of MNEs from the more developed western markets (conventional MNEs) setting up operations with subsidiary units in other countries (Ambos et al., 2006). However it needs to be understood that subsidiaries are increasingly turning out to be more competent (Holm and Pedersen 2000) and can prove to be valuable as knowledge contributors to sustain the MNE’s competitiveness. Hence the need for more studies that focuses on RKT. For the second part of question relating to the EM context, it has been seen that EM MNEs have to face the double hurdle (Thite et al., 2012) of ‘liability of foreignness’ and ‘liability of emergingness’ (Madhok and Keyhani, 2012) as they venture overseas. Hence contrary to the traditional IB theories like OLI and Uppsala model, they do not have much ownership advantages to exploit and do not necessarily follow a stage-wise approach to internationalisation (Bangara et al., 2012; Ghauri and Santangelo, 2012). Given the fact that EM MNEs do not have many advantages to bank on, the double diamond model (Rugman and Verbeke, 1993) discusses the role of overseas subsidiary in transforming the host country location-bound assets into ownership advantage for the entire MNE (Agostino and Santangelo, 2012). This is very relevant in the conetext of the emerging market of India and their knowledge seeking acquisitions and how RKT plays a crucial role in the development of competitive advantage for the Indian MNEs. Further, it is always known that firms gain knowledge as part of their international operations and is seen as a positive outcome of internationalisation. In the case of EM MNEs, it is not just a positive outcome but is mostly a key motive of the acquisition (Kedia et al., 2012). However, very little attention has been given to how the EM MNEs learn from their advanced subsidiary units in other countries through RKT. Hence analysing RKT from overseas subsidiary units to the parent firms in India can help get insights on many of these success stories.

For this study, Indian MNEs have been chosen mainly because the OFDI from India has significant presence in the developed economies of Europe and North America and also owing to their indulgence in a large number of overseas deals in the last

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decade, specifically with a strategic asset seeking motive. The research methodology adopted is based on a cross sectional survey of Indian MNEs with overseas subsidiaries. The main objectives of this study are listed below;

1. Examine the extant literature to identify the main determinants of knowledge transfer to cover all prevailing perspectives that are relevant to the setting of an emerging market like India

2. Study the influence that the identified determinants have on reverse knowledge transfer in Indian MNEs.

a. Explore the effects of parent characteristics on the extent of reverse knowledge flow

b. Explore the effects of subsidiary aspects on the extent of reverse knowledge flow

c. Explore the effects of knowledge characteristics on the extent of reverse knowledge flow

d. Explore the effects of dyadic aspects between the parent and the subsidiary unit and their countries

e. Analyse the inter-linkages between these different determinants when it comes to their influence on reverse knowledge flow by integrating all the different perspectives

1.3 Research Contributions

This study attempts to contribute to the research in the context of emerging market of India, by enhancing our current understanding of Indian MNEs and how they acquire knowledge from their overseas subsidiaries. By way of this study, we further attempt to support the IB and management theories like spring board perspective (Lou and Tung, 2007), LLL framework (Mathews, 2006) and double diamond (Rugman and Verbeke, 1993) model that throw light on the relevance of RKT in the catching up strategies of EM MNEs and their learning from overseas acquisitions. Further by focussing on the knowledge characteristics as well in this study we also draw from the knowledge based view (Grant, 1996a) from strategic management

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literature which recognises the value of knowledge in terms of its rarity and inimitability. It is also important to note that prior studies on RKT have only targeted conventional MNEs with overseas subsidiaries (Gupta and Govindarajan, 2000; Ambos et al., 2006; Yang et al., 2008). Hence this study is a step further in the direction of comprehending the phenomenon of RKT in the context of an emerging market like India. The extant KT literature has focussed on various determinants when it comes to reverse knowledge flow which includes organisational characteristics of source and recipient units and the various mechanisms they adopt, knowledge dimensions and relational aspects between the units. A typical study from the knowledge flow literature mostly focuses on the effect of some of these determinant categories and hence the need to analyse the process with each of these different categories of determinants. Considering this caveat in the extant literature, the study makes a contribution to the KT literature by analysing RKT using a multi-level perspective. This enables the researcher to have a holistic understanding of the phenomenon which calls for an integrative model that incorporates the interplay between these aspects, which has also been attempted in this thesis. This also stems from the recent call for multi-level perspectives and analysis in IB (Buckley and Casson, 2009; McGuinness et al., 2013; Peterson et al., 2012). Finally, the study also has managerial implications by way of recommendations that could cater to efficient knowledge exchanges in Indian MNEs.

1.4 Thesis Outline

The thesis is structured as depicted in Fig. 1. It begins with an examination of the extant theories on MNEs in Chapter 2 which explains the reason for existence of the firms and how the markets influence them. Further, we look at the literature for evidence on internationalisation by EM MNEs and the resulting knowledge pursuits. Their internationalisation patterns could be seen in the light of some of the more recent alternative frameworks for EM MNEs that have attempted to explain the theoretical link between the internationalisation and their learning by way of knowledge exchanges. Examining the extant theories against the more recent frameworks suggested for EM MNEs proves to be useful in bringing out several aspects that are unique to EM MNEs when compared to the conventional MNEs. The focus then moves on to the internationalisation of Indian MNEs and the

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institutional environment in India which is the context of this study. Following this, the study makes an attempt to identify and bring together the relevant literature primarily targeted at knowledge transfers in MNEs that explicitly study its determinants. Drawing on the literature on multinationals and knowledge transfers, the study puts forth the conceptual models and hypotheses for further analysis of reverse knowledge transfer in Chapter 3. Subsequently, the methodological approach for the study is detailed in Chapter 4 that targets the relevant aspects of sampling, questionnaire development, data collection and measures used. Chapter 5 deals with the data analysis in terms of the descriptives, factor analysis and testing of the hypotheses and presents the empirical results of the same. Finally, the conclusions, implications and limitations of this study are discussed in Chapter 6.

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2. LITERATURE REVIEW

Multinational Enterprises and their activities has always been the centre of focus for International Business (IB) scholars since the 1970s. There have been several prominent theories (Hymer, 1976; Caves, 1971; Vernon, 1966; Williamson, 1975; Buckley and Casson, 1976; Dunning, 1981) since then enhancing our understanding of why these MNEs exist. The review attempts to briefly discuss the salient features of these theories to begin with and will examine their applicability in the context of EM MNEs. The discussion will then move on to the literature on EM MNEs, their internationalisation, internationalisation of Indian MNEs and their institutional environment. The subsequent sections will throw light on some of the key concepts related to knowledge management and organisational learning which will then be followed by a review of the literature on knowledge transfers in MNEs.

2.1 Extant Theories on MNEs

One of the earliest theories on multinationals started with Hymer (1976) and his perspectives which proved to be an approach based on industrial organisation theory. Hymer is believed to have been influenced by Coase (1937) and his analysis of the firm in relation to the market (Dunning and Pitelis, 2009). Coase (1937, p. 389) attempted to explain the existence of the firm - “firms exist because they reduce the transaction costs that emerge during production and exchange, capturing efficiencies that individuals cannot”. Hymer’s perspective was a clear departure from the so called neo-classical trade and financial theories to an approach based on industrial organisation theory (Dunning and Rugman, 1985). Prior to this, the flow of capital was attributed mainly to the difference in levels of the interest rates with little or no focus on the MNE activities. With the focus shifting on to FDI and the reasons that prompted MNEs to engage with this mode of international production, the theory of FDI, gained more prominence and was found to be more relevant than ever. It was argued that MNEs owe their existence to structural market imperfections for final products (Hymer, 1976). Hymer’s work brought out the distinction between portfolio investment and FDI and highlighted the advantage pertaining to the greater control that the firm enjoyed with FDI (Pitelis, 2006). This

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paved the way for identifying the reasons for why MNEs opt for foreign operations in spite of the various disadvantages associated with the same. The attempt herein was to provide more fundamental answers to reasons for a firm to prefer one mode of foreign operation over the others (Hymer, 1976) and in the process how they utilize their firm specific advantages to produce substantial returns. However, one of the criticisms against his work is with regards to the focus on structural imperfections in the market while not considering the cognitive imperfections (related to transaction costs) (Dunning and Rugman, 1985). To summarise, Hymer could well be considered as one of the pioneers to put forth the concepts of internalisation and transaction costs of MNEs in his work (Dunning, 2003; Horaguchi and Toyne, 1990) though it may not have been fully conceptualised. It is also worthwhile to note at this point that the explanation to FDI was also provided in terms of intra-firm knowledge transfer (Hymer, 1968) showing glimpses of the resource based view and evolutionary theory of MNEs (Pitelis, 2006).

Transaction Cost Analysis

With Hymer setting the foundation for a new theory of the multinationals, this was further refined by researchers like Kindleberger (1969) and Caves (1971). Caves (1971) went on to analyse vertical FDI2 and horizontal FDI3 and what prompts firms to adopt either of these approaches. The concept of transaction cost (TC) which was not fully developed in Hymer’s work emerged as one of the most prominent theories in relation to a firm later on. Williamson (1975, 1985) went on to identify the types of transactions that firms would engage with. A transaction involves the transfer of a good or a service across technologically separable interface and the cost or economics of organising the same is are captured in the three dimensions of uncertainty, asset specificity and frequency (Foss, 2005). Governance structures (markets, hybrids and hierarchies) also play a major role in transaction cost economics. The basic theme of TC is the manner in which different transactions are aligned with various governance structures to minimise the costs associated with the transaction (Foss, 2005). TC analysis also relies on two basic behavioural

2_{Investments made in different operations that comes with vertical integration} 3_{Investment made to conduct similar business operations}

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assumptions of bounded rationality and opportunism (Williamson, 1981). Internalisation happens when the transaction is taken out of the market using specialised governance structures into the firm (Teece, 1986). The concept of TC was utilised in the internalisation perspective which needed to examine the nature of these transactions for a more comprehensive understanding of MNE activities. The transaction cost economics could be thus used to extend the internalisation framework to analyse the transactions which can and cannot be internalised (Teece, 1986). Further, TC provides insights into the governance, economic welfare, export competitiveness and the relationship of MNE with host countries. However, there are still questions posed on the individual aspects of exchange which does not take into account the group or team aspects and as to how the approach is static in nature (Ghoshal and Moran, 1996) thus ignoring the much needed dynamic perspective. Production and technology costs along with the possibility of non-contractual exchanges (Hodgson, 1998) have also not been well accounted for.

Theory of Internalisation

The concept of market imperfection and TC was further expanded by Buckley and Casson (1976) on the basis of internalisation and the resulting gains. The principle of internalisation tends to explain the boundaries of the firm and how they shift in response to changing situations (Buckley and Casson, 2009). The focus has been on the internalising operations as well as the knowledge. The theory also assumes that the choices made by the owners or managers of the organisations are rational. The theory of internalisation stressed on an investment in foreign markets leading to flows of intermediate products like knowledge and expertise with all of these activities under common ownership and control (Calvet, 1981). This study led the way for an industry and firm specific focus when it comes to analysing FDI flows and their determinants (Rugman and Verbeke, 2003). The focus is on firm specific advantages that lead firms to internalise across markets (Henisz, 2003). Firms internalise imperfect external markets till the costs of this internalisation offsets the benefits arising from the same (Buckley and Casson, 1976). While doing so, they choose locations that are most favourable to reduce their operational costs. Thus they grow and expand via internalisation of markets across boundaries while they encounter several types of market imperfections. Progress with internalisation theory

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has led it to be used in conjunction with trade theory to explain location choices of the firm, with organisation theory to explain international joint ventures (IJV) and theories of innovation to explain the kind of industries in which a firm will operate (Buckley and Casson, 2009). However, it could be argued that they conceptualised MNEs as being centrally administered and hierarchical in nature, which may not be currently applicable (Rugman and Verbeke, 2003). The concept of location-bound firm specific advantages is also essential in understanding the present day MNEs, who have a differentiated network of subsidiaries. The static treatment of the MNE has also been criticized and so is the limited capability to explain governance decisions of the firm (Madhok, 1997).

OLI – The Eclectic Framework

Dunning’s (1981) eclectic paradigm is a framework that tends to explain the determinants of international production based on the three sets of advantages of OLI4 (Ownership, Location and Internalisation ) and is a step further for the internalisation theory. The advantages of OLI could be explored further to understand the possible configurations of these advantages in various contexts (Dunning, 2001). Thus it attempts to provide explanations for the returns on FDI in terms of these three factors. The motives for the FDI have also been identified as market seeking, efficiency seeking, resource seeking and strategic asset seeking. The need to account for innovation in sustaining and upgrading competitive advantage and the fact that cross border alliances play a major role in acquiring these competitive advantages (Dunning, 1995) has also been recognised. There are also criticisms to OLI with respect to the redundancy of the ownership advantage since it stems from the internalisation advantage and is often seen as not completely distinct from the location advantage (Itaki, 1991). The OLI model has been further enhanced to distinguish between asset based ownership advantages and transaction based ownership advantages (Dunning, 2004). Also the fact that theory involves multiple factors could lead to methodological issues (Itaki, 1991). The eclectic theory demands a dynamic perspective along with recognising the fact that capabilities of the firm go beyond the ownership boundaries. The OLI framework was further

4_{Ownership – competitive advantages of the firm, Location – location based advantages available to} the firm for its operations, Internalisation – the firms motives to engage in FDI

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enhanced to formulate the IDP paradigm (Dunning and Narula, 1998) which states that countries typically traverse five stages of development that is based on the trends in inward and outward investment. This included a dynamic approach to the OLI framework. According to the IDP theory, based on the location advantages that come with economic growth, firms could attract inward FDI to begin with. Following this, the ownership advantages gradually increase due to collaboration with foreign partners and the associated learning. Traversing through these successive stages, firms embark on outward FDI based on their ownership advantages. Dunning and Lundan (2008) have also proposed a theoretical framework that incorporates the effects of institutional influences, both within and outside the firm, in addition to the three components of the OLI.

IP model (Uppsala)

The OLI, TC and the internalisation theories helped understand why firms choose certain transactions and governance modes and the advantages they might have with each of the modes especially when they venture overseas. Further, it was also essential to understand how firms went about the process of internationalisation. The traditional theories on how firms internationalise started from the evolutionary mode with the Scandinavian Uppsala model (Johanson and Vahlne, 1977) that has its basics drawn from behavioural approach (Andersen, 1993) and also with an emphasis on learning theory. This internationalisation of MNEs is responsible for the development of knowledge that is gained from such an experience (Johanson and Vahlne, 2009). Firms resort to a cumulative process of involvement in foreign markets which starts from exporting to agency establishment to sales subsidiary and then to a production subsidiary. As per this theory, firms first penetrate the closer markets and gain experience and knowhow to get into the farther and more difficult markets. The reason for this incremental learning approach is attributed to the lack of knowledge with respect to newer markets (Cuervo-Cazurra, 2007) along with the associated uncertainties and risks and its effect on market commitment. The factors like psychic distance (Andersen, 1993) inhibit the flow of information and determine the entry modes that firms adopt. A network perspective was also included to the model which took into account relationships with other entities in the overseas

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markets (Johanson and Vahlne, 1990). The idea of advantage package5 and

advantage cycle6 was later on also introduced as factors affecting the

internationalisation process. The relevance of business networks and the positioning of the firm along with the factors like trust and knowledge creation in relationships have also been highlighted (Johanson and Vahlne, 2009). One of the limitations of this model is the inability to explain some of the internationalisation patterns observed amongst EM MNEs (Lou and Tung, 2007; Bonaglia et al., 2007) wherein firms do bypass some of the steps outlined in this sequential mode. These patterns are characterised by “leapfrogging” and a rapid approach to internationalisation rather than a sequential mode. Also since the model was developed based on a study on Swedish firms, it could also be argued that the institutional and cultural contexts (Sim and Pandian, 2007) associated with many of the EM MNEs have not been accounted for in the internationalisation process.

Most of the extant theories that were discussed so far were based on contractual approaches which are based on TC. Besides the contractual approach, the other major perspective when it comes to theories on firms is the competence based approach (Foss, 1993; Hodgson, 1998). Contrary to the contractual approach, the competence based approach is centred on competencies within the firm which consist of skills and tacit knowledge. The following section discusses some of the prominent competence based perspectives. The competence based perspectives have garnered a lot of scholarly attention off late.

Competence Bases Perspectives

The evolutionary theory of the firm (Nelson and Winter, 1982), competence view of the firm (Penrose, 1959; Prahalad and Hamel, 1990) and resource based view of the firm - RBV (Barney, 1991; Wernerfelt, 1984) are some of the prominent competence based perspectives. The evolutionary theory of the firm proposes to understand how organisations manage changes and the role of organisational routines in achieving the same (Nelson and Winter, 1982). This perspective sees organisational routines as the basic component of organisational behaviour and capabilities (Becker et al.,

5_{Consisting of the strengths and weakness of a firm at a point in time} 6_{The variation of the package in time}

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2005). It also stresses on organisational memory which consists of these routines as a repository of organisational capabilities and these routines have tacit components as well. The competence view takes the stance that it is not better resources but the better use of resources that lends it the distinctive competence (Mahoney and Pandian, 1992). The focus is on the heterogeneity of the firm, rate of growth of the firm and the effective management of existing resources and development of new resources. RBV is an offshoot from the competence and evolutionary view of the firm and tends to focus more on the efficiencies of the firm with respect to effective utilization of its resources and capabilities to sustain the competitive edge. It sees firm as an innovator working towards achieving long term prosperity. The basic assumptions of this theory are that these resources (Barney, 1991) are distributed heterogeneously across the firms and there is a cost involved in the transfer of the same between firms. The rarer and the more difficult it is to imitate (substitute and transfer) the resources, the more valuable will be these to the firm to maintain its competitive edge. Whether this framework could be elevated to the status of a full- fledged theory is still debatable as questions have been raised on the unobservable nature of some the related constructs thus making it difficult for empirical investigations (Godfrey and Hill, 1995). In addition this is a static treatment (Priem and Butler, 2001) although there has been a dynamic extension later on. In spite of these limitations, there have been various streams of literature that has stemmed from this framework like the dynamic capabilities framework (Teece et al., 1994) and knowledge-based view (Grant, 1996a).

2.2 Applicability of Extant theories for EM MNEs

Prior to examining the applicability of the theories on MNEs from different economies, it is pertinent to understand some of the major classifications of countries based on their economies. There are several classifications that group countries into different categories like advanced (developed) economies, developing economies, transition economies and emerging economies. According to World Bank (2012), low and middle income countries (based on 7GNI per capita below $12,615) constitute developing countries (Alvi, 2012). According to International

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Finance Corporation (1999), those developing countries which have an “investable market capitalization that is lower relative to its most recent 8GDP figures” (low income and high growth) are called emerging markets (Alavi, 2012, p. 522). Transition economies are another group of countries who are in the process of transformation from centrally planned economies to market economies and this includes countries from 9CEE (Central and Eastern Europe), 10Baltics, 11CIS (Commonwealth of Independent States) and 12Asia according to 13IMF (2000). The advanced economies are mostly the high income countries based on World Bank (2012) classification and IMF (2013) also has a list of 1435 countries that are included in this category based on the levels of economic development, availability of infrastructure, technological and industrial development and general standard of living.

The suitability of the extant theories to explain the activities of MNEs from emerging economies has been a topic of debate in IB research (Bonaglia et al., 2007; Madhok and Keyhani 2012; Gammeltoft, P., et al., 2010). It needs to be noted that most of these theories were based on the then prominent MNEs from the advanced economies of the West (often referred to as the triad) or the conventional MNEs. The conventional MNEs ventured overseas to exploit their ownership advantages (proprietary assets) and make use of the location advantages (factor and resource costs) (Mathews, 20006). In general, they ventured overseas when they had acquired the required ownership advantages to do so. In doing so, they largely went overseas to exploit larger markets, the lower costs of operation and natural resources

8_{Gross Domestic Product}

9_{Albania, Bulgaria, Croatia, Czech Republic, FYR Macedonia, Hungary, Poland, Romania, Slovak} Republic, Slovenia

10_{Estonia, Latvia, Lithuania}

11_{Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Russia,} Tajikistan, Turkmenistan, Ukraine, Uzbekistan

12_{Cambodia, China, Laos, Vietnam} 13_{International Monetary Fund}

14_{United States, Germany, United Kingdom, France, Italy, Japan, Canada, Switzerland, Denmark,} Norway, Australia, New Zealand and Netherlands are some of the major advanced economies

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available in some of these host countries. This was a gradual process of venturing into the more familiar markets initially and gradually moving onto unfamiliar markets with more committed entry modes as in the IP model. By way of internalisation, they benefited from the economies of scale and scope (Mathews, 2006).

In the case of the internationalisation of EM MNEs, their path does not necessarily follow this pattern. Many of them have adopted an accelerated and aggressive approach when compared to conventional MNEs (Luo and Tung, 2007; Mathews, 2006; Aulakh, 2007; Madhok and Keyhani, 2012; Bangara et al., 2012; Ghauri and Santangelo, 2012). They did not wait to accumulate the required ownership advantages (in par with some of their western counterparts) to venture abroad. Instead they started accumulating the ownership advantages as they ventured abroad often engaging in multiple ventures simultaneously, acquiring companies even larger than them in a shorter time span and hence the reference to accelerated and aggressive approach. Most of these internationalisations have strategic asset seeking as one of their primary objectives whereas the conventional MNEs had more of an asset exploitation motive when they ventured abroad. The EM MNEs did not have the traditional ownership advantages (globally reputed brands, state of the art production and manufacturing facilities and infrastructure and innovative capabilities to name a few) that conventional MNEs exploited when they went overseas (Mathews, 2006; Aulakh, 2007; Madhok and Keyhani, 2012). The advantages that EM MNEs enjoyed were mostly in terms of their lower operating costs, massive labour intensive operations and familiarity with conditions in developing markets (Luo et al., 2011). Compared to the conventional MNEs, many of the EM MNEs were late entrants in the international markets with much less international experience. There are also factors like the extensive ethnic networks, family owned business groups and influence of their government policies and interventions that have aided many of the EM MNEs in their process of internationalization (Sim and Pandian, 2003). Such factors are not so prominent in the conventional MNEs. The extant theories do not account for the weaker institutional environment that is very much a part of the EM MNEs. Some of the EM MNEs are seen to turn their institutional voids into business opportunities (Khanna and Paleppu, 2006). The need to incorporate the institutional perspective to

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understand EM MNEs and their internationalisation has been advocated to a large extent (Alvi, 2012; Holbrugge and Baron, 2013). Their dual strategic intents (Luo et al., 2011) while internationalising has also been discussed in terms of offensive (leveraging the advantages they have) and defensive motives (evading the poor institutional environment at home). Given all these unique aspects of the internationalisation of EM MNEs, many IB scholars have started questioning the applicability of the extant theories/frameworks like OLI, IP and internalisation (Mathews, 2006; Lou and Tung, 2007; Guillen and Garcia-Canal, 2009) which doesn’t account for all of the above.

As is evident from the above discussions, the extant theories mostly originated from studies on MNEs from the Western World or the triad. However, it also needs to be noted that some of the theories like OLI and the internationalisation models have undergone modifications or extensions to account for the more recent activities and aspects of MNE activities and the prevailing competitive global environment (Dunning and Lundan, 2008; Dunning and Narula, 1998). From a knowledge perspective, the TC approach is still valid for EM MNEs from the point of view that firms tend to internalise knowledge because of the difficulties associated (TC) with trading knowledge (owing to its tacit nature) in open markets or using arm’s length transactions. In addition, internalising this knowledge also helps them protect this knowledge from competitors. This aspect still holds good irrespective of whether they are conventional MNEs or EM MNEs. Most of the research in IB has been based on models of industrial organisation and in contrast to many of the extant theories based on contractual approaches, the competence based view with RBV and associated frameworks (from strategic management literature) tend to take the stance that the organisational advantage possessed by the firm prompts it to organise economic activity much better than markets can (Teece et al., 1997). While the industrial organisation approach takes an outside view of the firm (Ahiakpor, 1990), the internalisation framework and the competence based approach takes an inside view of the firm.

The competency approach sees firm as a bundle of resources (Penrose, 1959). The competitive advantage that a firm has is based on how effectively it utilises its resources, constantly reconfiguring it to meet the demands of the evolving business

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environment (Barney, 1991; Wernerfelt, 1984; Teece and Pisano, 1994). Based on these competence based approaches, the strategic assets (of which knowledge is a crucial component) that the MNE possesses is crucial for sustaining its competitive advantage. This recognition that knowledge is vital for its competitiveness is very evident in the efforts of EM MNEs in actively seeking strategic assets that they do not possess by means of accelerated international acquisitions. Hence the competence based approach in this regard is found to be applicable to explain the knowledge seeking acquisitions of EM MNEs. The IB literature has also used competency based approaches for such studies on EM MNEs (Lee and Slater, 2007; Gert, 2010). The point to be highlighted here is that this recognition of knowledge as a strategic asset is evident in both conventional and EM MNEs. However, in general, conventional MNEs have been more successful than EM MNEs in developing more of this required knowledge in-house when compared to EM MNEs who have been more reliant on external sources for this. With respect to EM MNEs, their levels of internationalisation are still much lower when compared to conventional MNEs (Fortanier and Tudler, 2009). Some IB scholars have also argued that EM MNEs are truly not multinational as some of the conventional MNEs in terms of their sales which is still largely home region based (Rugman, 2008). With this background, the following section examines the literature on the different internationalisation patterns of EM MNEs, the more recently developed frameworks for EM MNEs and the debates around the need to have new theories/frameworks for EM MNEs.

2.3 Internationalisation patterns of EM MNEs

Having seen some of the aspects that are unique to the internationalisation of EM MNEs, this section will deal further with EM MNEs, the definition of EM and the internationalisation patterns of EM MNEs.

The term “emerging markets” was first coined by Antoine van Agtamel, a World Bank economist in the 1980s (Kearney, 2012). The EMs together account for four fifths of the world’s population and one fifth of the global GDP (Kearney, 2012).There are several definitions and classifications available for EMs. One of the definitions which describe EMs fairly well is provided below;

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“Emerging markets represent countries whose national economies have grown rapidly, where industries have undergone and are continuing to undergo dramatic structural changes, and whose markets hold promise despite volatile and weak legal systems” (Luo and Tung, 2007, p. 483).

Amongst the different classification systems for emerging markets, the most cited ones are from UNCTAD, 15FTSE and 16MSCI (Jormanainen and Koveshnikov, 2012). According to UNCTAD, there are two categories of which the first is emerging industrial economies which have 32 countries that include some of the major players like Argentina, Brazil, Chile, India, Mexico, Poland, Romania, Greece, South Africa, Thailand and Turkey. The second category of emerging economies comprises of 10 countries which includes Malaysia, Singapore, Thailand, Brazil, Argentina, Chile, Mexico, Peru, Taiwan and South Korea.

FTSE classifies them as (i) advanced emerging countries that include Brazil, Czech Republic, Hungary, Malaysia, Mexico, Poland, South Africa, Taiwan and Turkey and (ii) secondary emerging countries like Chile, China, Colombia, Egypt, India, Indonesia, Morocco, Pakistan, Peru, Philippines, Russia, Thailand and UAE. The MSCI emerging market index classification is similar to FTSE classification except for the fact that it does not have Pakistan and UAE but includes South Korea. Hence for the purpose of the literature review on EM MNEs, the focus is on the list of countries under the FTSE classification along with South Korea (from MSCI). However, the more specific comparisons between these EM MNEs in terms of the patterns of OFDI and internationalisation have been made specifically focussing on the BRIC (Brazil, Russia, India and China) countries and in some cases on BRICS (to include South Africa) based on the availability of data.

The first set of literature on these MNEs which were then known as the ‘third world MNEs’ (TW MNEs) concentrated on the challenges they faced on route to being international players and the factors that prompted them to go global (Kumar and McLeod, 1981; Wells, 1983; Lecraw, 1977 and Lall, 1983). They focussed more on the ability of these TW MNEs (at an early stage) to reduce operational costs and

15_{Financial Times Stock Exchange} 16_{Morgan Stanley Capital International}

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using the same to advantage in other similar less developed countries. Many of them operated in an environment of government tariffs and regulations and were encouraged to expand as part of import substitution policies. They relied on relatively cheap labour intensive operations and exported products to the developing and other poor nations (Lall, 1983). Their strength was their familiarity with the conditions that existed in these third world nations and their ability to adapt their operations and products to the demands of this environment. They were pushed into internationalisation by the difficulties they encountered in their home environment (Kumar and McLeod, 1981). They had limited knowledge of the global market as they lacked international experience. Most of these countries did not have the kind of sophisticated infrastructure, legal & regulatory mechanisms, supply or distribution channels, market intelligence etc. which could be found in developed countries. They had a long way to go when it comes to the progress they had achieved in areas like R&D, leadership & management strategies, corporate governance and organizational learning to name a few.

Following this, there was the next set of literature focussing on the subsequent wave of their international expansion in the late 1980s (Lecraw, 1993; Tolentino, 1993) and then the most recent wave in early 2000 (Jormanainen and Koveshnikov, 2012) that marked the era of EM MNEs who were quite different from their predecessors. These MNEs were interlinked in the global economy which was changing rapidly and they were pulled into the international arena rather than being pushed (Mathews, 2006). The pull factors included location specific advantages in terms of sophisticated resources like modern technologies, research & innovations and larger markets (Aulakh, 2007; Jormanainen and Koveshnikov, 2012). Needless to say some of the push factors linked to their home environment like weak institutional framework, lack of natural resources, and competition at home from international players continued to have its effects as well (Luo et al., 2011). The government has a major role in the internationalisation of EM MNEs in terms of the policies that they have which could be either restrictive or promotional in nature. In addition, the presence of ethic networks, family owned business groups also influenced their internationalisation strategies and orientations (Jormanainen and Koveshnikov, 2012; Sim and Pandian, 2003). Some of these EM MNEs are also conglomerates with highly diversified businesses and they maintain their strong focus with respect

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to their domestic market even when they venture overseas (Fortanier and Tudler, 2009). The interesting aspect about the more recent internationalisation of EM MNEs (as discussed earlier in section 2.2) is that they did not have the traditional ownership advantages that the conventional MNEs relied on when they went overseas (Bangara et al., 2012). In general, EM MNEs are found to have disadvantages with regards to possessing world class technology, R&D, innovative and other organisational capabilities (Peng, 2012; Mathews, 2006; Aulakh, 2007; Madhok and Keyhani, 2012). However, there could be a few exceptions to this (viz. Tata Steel, SAB Miller) where the EM MNE could have capabilities in par with their western counterparts and they could be world leaders in their respective industry. Most of the acquisitions by EM MNEs were carried out to attain a global footprint, bigger markets and natural resources although knowledge transfers cannot be completely ruled out post-acquisition. These MNEs could still be involved with learning from the acquired units even though it may be much less compared to the other typical EM MNE scenarios. These MNEs could be exceptions because they internationalised quite early on (SAB Miller started international venturing as early as 1980 to US) and belonged to relatively mature industries which are not very R&D intensive or technologically turbulent. The steel industry in India is also one of the oldest industries which existed pre-independence (prior to 1947) and which flourished with the help of foreign collaborations and technical aid (1960’s to 1980’s) mainly from the then Soviet Union, UK and West Germany (Gupta and Reisman, 2005). This made India one of the largest steel producing and exporting countries (currently fourth in the world after China, Japan & US). Even with all this capability, the Corus acquisition helped Tata with higher-value qualities of steel in addition to being able to consolidate its market position and getting market access (Goldstein, 2008). The capability gap that EM MNE has with other world leaders could vary depending on the background and history of the firm, its international experience and the scale and scope of its operations and could be more prominent especially when the EM MNE is a late entrant.

As far as the late entrants are concerned, aided by the structural changes in such emerging economies, they internationalised to gain access to some of the advantages they do not have. As latecomers, they had to face the face the double hurdle (Thite et al., 2012) of ‘liability of foreignness’ and ‘liability of emergingness’ (Madhok and

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Keyhani, 2012). Hence they needed to attain the legitimacy to overcome the third world image that they have (Bangara et al., 2012) and they had to do extensive catching-up in relatively short span of time by leapfrogging. Hence they resorted to strategic alliances, international joint ventures, acquisitions and other such arrangements to acquire brands, distribution systems, competencies and knowledge (Lou and Tung, 2007; Elango and Pattnaik, 2011; Mathews, 2006) and compete on differentiation based advantages (Sim and Pandian, 2007) rather than mere cost based advantages. Hence the pattern of accelerated internationalisation, without necessarily following the gradual approach of feeling out the culturally and geographically closer markets to begin with, before venturing into the culturally and geographically distant markets (Bangara et al., 2012; Ghauri and Santangelo, 2012). Their internationalisation approach has also been quite aggressive and risk tolerant (Liu et al., 2011; Lou and Tung, 2007) focussing on aggressive M&As (Jormanainen and Koveshnikov, 2012). For example, Ranbaxy of India acquired eight foreign companies in a span of one year (Chandler, 2007) and 70% of Indian acquisitions are aimed at complete ownership indicating their level of commitment (Pradhan, 2007). In terms of location and motives it has been noted that they rely on both asset exploitation and exploration modes focussing more on the latter when they venture into developed countries (Kedia et al., 2012; Mathews, 2006). When they venture into other developing countries similar to their own they also get the opportunity to exploit their familiarity and expertise in doing business in such conditions. The, asset seeking motive is definitely very prominent in the more recent internationalisation attempts of these EM MNEs (Buckley et al. 2007; Kalotay and Sulstarova, 2010) when compared to the earlier phases, more so when they targeted acquisitions in the developed countries (Zhao et al., 2010). The shift to developed countries is also a more recent phenomenon. However, this does not mean that they do not indulge in market seeking and resource seeking ventures anymore and they still are very much a part of their acquisition motive as was with the first and second wave of internationalisation (Jormanainen and Koveshnikov, 2012). But this does not mean that EM MNEs seek knowledge only from innovative developed countries. They could also seek knowledge from developing countries and other emerging markets as well (Pradhan and Singh, 2009) especially when they have specific industries with a long tradition and higher concentration of R&D activities. On

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similar lines, in the case of EM MNEs acquiring overseas firms, the flow of knowledge is not necessarily uni-directional. Even though the likelihood and extent of RKT from overseas subsidiaries to the parent EM MNE could be more, there could be knowledge flows in the opposite direction as well. In fact, the success of several of these overseas ventures is based on efficiently exploiting synergies of both the acquirer and acquired (Kumar, 2008). The following sections focus on some specific studies centred on the above distinct internationalisation paths adopted by EM MNEs which further illustrate the above discussed knowledge seeking motive. The themes emerging from the reviewed literature on internationalisation of EM MNEs has also been presented in Fig. 2.

Figure 2: Internationalisation of EM MNEs - Literature by themes

MNEs from Asia form a major chunk of the EM MNEs who have rose to prominence in the new era of globalisation. Multinationals like Haier (China), Mabe (Mexico) and Arçelik (Turkey) from the white goods industry have extensively and effectively utilised their participation in global value chains and 17OEM

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arrangements (Bonaglia et al., 2007). These arrangements and acquisition of western brands have been used to leverage knowledge that they did not have. This in turn has helped them overcome their latecomer disadvantages. Their success as global players followed, with the establishment of their own brands, production facilities and their investments in R&D and innovation. On similar lines, some of the Thai multinationals also shifted their focus towards international expansion (Pananond, 2007) following the Asian economic crisis. As the environment became more competitive following the crisis, they overcame their weak technological capabilities and deficiencies in their institutional environment by establishing the required international networks and shifting their focus from the earlier personalised networking. Another significant case is the transformation of Samsung which displays the ability of the firm to acquire dynamic capabilities in accordance with RBV (Lee and Slater, 2007). Samsung (from South Korea) has been successful in overtaking some of their counterparts from the developed economies and they developed these competencies through the process of acquiring and deploying resources followed by a remarkable transformation. The company invested heavily in joint ventures and production plants overseas mainly with an asset seeking and market seeking objective. The manner in which they transformed their capabilities in an innovative way, by constantly redesigning and reconfiguring their capabilities with the help of knowledge and market acquisitions, is in accordance to the dynamic capabilities framework (Lee and Slater, 2007). Taiwanese and Malaysian firms who were earlier concentrating on expansion in other Asian regions have also seen to be shifting its focus to developed countries with the intention of strategic asset seeking (Sim and Pandian, 2007). There is also evidence that there are “Chinese MNEs who internationalised to gain better access to foreign proprietary technology, strategic assets and capabilities often by acquisition for market access and business diversification” (Buckley et al., 2007, p. 503) which would make them globally competitive. In the case of Chinese MNEs, the home country government plays a crucial role in their internationalisation and they are rapidly adopting acquisitions as a primary mode of entry even in the absence of superior technological and managerial resources (Peng, 2012). Similar patterns could be observed with EM MNEs from South Africa who have adopted a combination of offensive and defensive strategies to field global competition (Klein and Wocke, 2007). Asset

Reverse Knowledge Transfer in Indian MNEs